Aquacultural Engineering 32 (2005) 303323

www.elsevier.com/locate/aqua-online

The economic impact of proposed effluent treatment

options for production of trout Oncorhynchus
mykiss in flow-through systems
Carole R. Englea,*, Steeve Pomerleaua, Gary Fornshellb,
Jeffrey M. Hinshawc, Debra Sloand, Skip Thompsone
a

Aquaculture/Fisheries Center, Mail Slot 4912, University of Arkansas at Pine Bluff,

1200 North University Drive, Pine Bluff, AR 71601, USA
b
University of Idaho Extension, 246 3rd Ave E., Twin Falls, ID 83301, USA
c
Department of Zoology, North Carolina State University, 455 Research Drive, Fletcher, NC 28732, USA
d
North Carolina Department of Agriculture and Consumer Services, P.O. Box 1475, Franklin, NC 28744, USA
e
North Carolina Cooperative Extension, P.O. Box 308, Waynesville, NC 28786, USA
Received 20 April 2004; accepted 13 July 2004

Abstract
The United States Environmental Protection Agency has considered several treatment options for
flow-through systems in its Effluent Limitation Guidelines rulemaking effort on aquaculture.
However, the economic effects of treating effluents can impose high costs on aquaculture businesses,
depending upon the treatment option selected. Survey data from trout farmers in North Carolina and
Idaho were used to develop enterprise budgets, a spreadsheet-based risk analysis, and mathematical
programming models of medium-sized trout farms in North Carolina (68,182 kg/yr) and Idaho
(90,909 kg/yr) and large trout farms in Idaho (1,136,364 kg/yr). These analyses were used to examine
the effect of imposing five different effluent treatment options on the net returns of farms raising trout
in raceways. Budget analyses showed that the trout farm scenarios considered were generally
profitable, although the medium-sized farms exhibited low levels of profitability. All five proposed
effluent treatment options resulted in negative net returns for the medium-sized farms in both North
Carolina and Idaho. The large farm scenario showed positive net returns after adding costs associated
with the affluent treatment options considered, but the risk of generating positive net returns
decreased from 8284% to 1011%. Thus, financial risk increased considerably when treatment

* Corresponding author. Tel.: +1 870 575 8523; fax: +1 870 575 4637.
E-mail address: cengle@uaex.edu (C.R. Engle).
0144-8609/$ see front matter # 2004 Elsevier B.V. All rights reserved.
doi:10.1016/j.aquaeng.2004.07.001

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C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

options were imposed. The mixed-integer mathematical programming model demonstrated sensitivities to the level of credit reserves both for operating and investment capital. The effluent treatment
options imposed on the models were not economically feasible at the levels of capital available on
most trout farms. Subsequent runs of the model used investment capital requirements of treatment
options at 50% of the original estimates. The models showed that imposing effluent treatment options
forced farms to substitute production units for treatment facilities. This results from a combination
of: 1) the additional capital requirements of the treatment options; 2) limited availability of credit
reserves; and 3) competing uses for land in trout farming areas that put upward pressure on land
prices. Many of the proposed treatment options included substantial investment capital requirements
that increased annual fixed costs. Limited availability of investment capital prevented the farm
expansion that would be needed to spread the increased fixed costs; hence, the models were forced to
remove units from production to meet treatment constraints. Net returns decreased because farms
were forced to operate at inefficient levels.
# 2004 Elsevier B.V. All rights reserved.
Keywords: Trout; Economics; Effluents

1. Introduction
According to the 1998 Census of Aquaculture (NASS, 2000), the U.S. trout industry
consists of 561 farming operations located in 42 states. Most of the trout are produced in
flow-through concrete raceways; however, earthen ponds continue to be used by some
farmers. The majority of the farms are small, family-operated businesses with average
sales per farm of $129,185 nationally. Eighty-one percent of the trout farms in the U.S.
have sales of less than $100,000 annually. However, there are a few (108) large trout
farming operations. These constitute about 19% of all trout farming operations but
over 85% of total sales. Idaho is the leading trout producing state with 7075% of
domestic production (NASS, 2003). North Carolina ranks second in the United States and
accounts for 8% and 10% of total U.S. production and sales, respectively. Twenty-one
(37%) of the 57 commercial trout farms in production in North Carolina in 2002 were
located in Transylvania County with a reported production of approximately 816,000 kg of
trout.
The United States Environmental Protection Agency (EPA) began to review aquaculture
for consideration in the Effluent Limitation Guidelines (ELG) program in 1998. The ELG
rulemaking effort considers economically achievable, technology-based standards for
incorporation into effluent rules. EPA outlined three potential regulatory options
for flow-through systems in the proposal that was published in 2002 (USEPA, 2002)
(Table 1). Option 1 included quiescent zones, sedimentation basins, best management
practices (BMPs), and compliance monitoring for total suspended solids (TSS). Option 2
included a drug and chemical BMP plan in addition to the other treatment options in Option
1. Option 3 included solids polishing (removal) with microscreen filters and weekly
compliance monitoring for total phosphorus in addition to the Option 2 provisions. EPA
proposed Options 1, 2, and 3 for large flow-through facilities with annual production
above 215,909 kg (475,000 lb) of trout, but proposed only Option 1 for medium facilities
with an annual production between 45,455 kg/yr (100,000 lb/yr) and 215,909 kg/yr

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305

Table 1
Treatment options proposed by EPA for flow-through systems
Treatment option

Specific components included

Option 1

Quiescent zones
Sedimentation basins
Best management practices (BMP)
Feed management BMP
Solids control BMP
Compliance monitoring for total suspended solids

Option 2

All components of Option 1

Drug and chemical BMP plan

Option 3

All components of Option 2

Solids polishing with microscreen filters
Weekly compliance monitoring for total phosphorus

Option A

Primary settling
BMP plan for facility
BMP plan for drugs and chemicals
BMP plan for escape prevention
Reporting INADs/extra label drug use

Option B

All components of Option A

BMP plan for solids control or
Solids polishing with microscreen filter

(475,000 lb/yr). No treatment options were proposed for facilities producing less than
45,455 kg/yr (100,000 lb/yr) because it was evident that these farms could not afford
additional treatment of effluents as proposed by EPA.
EPA published a Notice of Data Availability (NODA) on December 29, 2003. In the
NODA, two additional options (Options A and B) were included for consideration. Options
A and B restructured the combinations previously divided into Options 1, 2, and 3 and
added BMP plans for escape prevention in addition to reporting requirements for
Investigational New Animal Drugs (INADs) (Table 1).
Quiescent zones (considered in regulatory Options 1 and A) are settling areas for solids
in the lower (outflow) portion of tanks. Fish are excluded from quiescent zones with a
screen on the upstream side of the zone to prevent disturbance of settled solids. Quiescent
zones are typically cleaned with a vacuum hose attached to the drain outlet. Vacuumed
solids are then transferred to a sedimentation basin. After settling, accumulated solids are
removed periodically from the settling basins with a vacuum tank or a front-end loader and
disposed of through land application. Solids control BMP plans (considered under Options
1, 2, 3, and B) would require the farm manager to incorporate a series of site-specific
activities to limit the release of solids from the farms. These activities include specification
of feeding methods, description of proper pollution control technologies and equipment,
proper operation and maintenance of equipment, a cleaning schedule, training of personnel, and record keeping. Compliance monitoring for TSS requires labor and material for
weekly monitoring. An 8-h composite water sample would be collected and delivered to a
laboratory for analysis.

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EPA proposed a drug and chemical BMP plan for Options 2, 3, and A to document the
use of drugs and chemicals. Each farm manager would be required to develop a BMP plan
that presents a series of site-specific activities to control the inadvertent spillage or release
of drugs and chemicals.
Microscreen filters are included in Options 3 and B to achieve additional solids removal
with wastewater treatment technology. The microscreen filters would be used to reduce
solids discharged from sedimentation basin effluents. Filters would consist of a fine screen
(6090 mm) fitted to a rotating drum and equipped with an automatic backwash system that
removes collected solids.
While there have been a number of studies on effluent treatments in aquaculture, few
studies have focused on the economic feasibility of the specific effluent treatment options
proposed by EPA. Engle and Valderrama (2003) showed that settling basins were not
economically feasible for use in pond aquaculture. Wui and Engle (2004), using a mixed
integer linear programming model, found that the only feasible treatment alternatives for
hybrid striped bass effluents were not draining and not flushing ponds. However, the
production risks of not flushing or draining hybrid striped bass ponds have not been
thoroughly investigated. Engle and Valderrama (in review) showed, with a mathematical
programming model, that implementation of BMPs on shrimp farms can result in changes
in net revenue. The net revenue changes were both positive and negative and resulted from
changes in production practices, cash flow, and increased costs of financing shrimp
production. Analyses of both the farm-level and local economic impacts are important
to evaluate the overall effect of imposing additional treatment technologies on aquaculture
farms.
Kaliba et al. (2004) developed an IMPLAN analysis of the economic impact of the trout
industry. The trout industry in Transylvania County, North Carolina, generated about $9
million in economic output, created 201 jobs, generated $3 million in labor income, and
$0.9 million in tax revenue in 2002. This economic activity is particularly important in a
county like Transylvania County, where economic prosperity depends upon locally
available jobs and diversification of economic activities.
The objective of the current study was to evaluate the economic feasibility of the
proposed effluent treatment options for trout flow-through systems. The analyses focused
on trout farms in Idaho and North Carolina that produce more than 45,455 kg/yr
(100,000 lb/yr).

2. Materials and methods

Surveys of trout farms in Transylvania County, North Carolina, and Idaho were
conducted in 2003. Survey data were collected from 13 of the 21 farms (62%) in
Transylvania County, NC and 8 of the 26 trout farms in Idaho. The questionnaire solicited
information on resource inputs and production levels for 2002. These included trout
marketing, sales, and variable costs. Variable cost data collected included: transportation
costs, labor costs, chemical and oxygen costs, disease and treatment costs, electricity, fuel
and lubricant costs, stocking and feeding costs, waste management and effluent monitoring
costs, repair and maintenance costs, and overhead costs. Items included in the overhead

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307

cost were: telephone, farm insurance, legal, accounting, office supplies and consumables,
interest on capital, land lease costs, and nets, boots, waders and other miscellaneous
purchases. Base farm scenarios were developed that included: 1) medium-sized farm in
North Carolina producing 68,182 kg/yr (150,000 lb/yr); 2) medium-sized farm in Idaho
(90,909 kg/yr; 200,000 lb/yr); and 3) large-sized farm in Idaho (1,136,364 kg/yr;
2,500,000 lb/yr). These base scenarios were selected by choosing the most commonly
observed farm sizes in the survey data within the production level categories for
which EPA proposed treatment options. Different management practices used in Idaho
as opposed to North Carolina required development of separate base scenarios. No large
farm scenario was analyzed for North Carolina because there were no farms operating in
Transylvania County in 2003 with production levels greater than 215,909 kg/yr
(475,000 lb/yr).
Enterprise budgeting techniques (Kay and Edwards, 1999) were used to evaluate the
effect of imposing effluent treatment options proposed by EPA on the trout farm size
scenarios selected. Enterprise budgets were developed first without the proposed treatment
options. Production characteristics, management practices, and prices from the survey
results were used to develop estimates of annual costs and returns using standard budgeting
techniques (Kay and Edwards, 1999). Costs associated with the treatment options proposed
by EPA were added to the budgets and changes in net returns were then measured.
Additional scenarios were developed to reflect both farm businesses with no land financing
costs and those with land financing costs.
Both low and high cost scenarios were developed to account for the range of
implementation costs resulting from variation in site-specific conditions. For example,
compliance monitoring of TSS can be accomplished either by hand or by purchasing an
automatic composite sampler. Installation of quiescent zones may or may not result in
reduced production depending upon tank configuration. Similarly, construction of offline
settling ponds may require destruction of existing tanks if no additional level land is
available. For Option 1, the low-cost scenario included: solids control BMP plan,
compliance monitoring of TSS done by automatic composite sampler, quiescent zones
without negative effect on production, offline settling pond constructed without having to
destroy tanks and emptied with a vacuum tank, and no additional land purchased for
disposal of solids.
The high-cost scenarios for Option 1 included: solids control BMP plan, compliance
monitoring of TSS done by hand, quiescent zones that proportionally reduce production,
replacing existing tanks with offline settling ponds because no extra land was available,
offline settling pond emptied with a front-end loader, and additional land purchased for
disposal of the solids. No site-specific variation in costs was considered for Option 2
because no evidence for such variation was found. Thus, no distinction was made in the
analysis of Option 2 for low or high cost variations.
For Option 3, the low-cost scenarios were based on EPAs cost assumptions (EPA, 2002)
while the high-cost scenarios were based on comments of the Flow-Through Subgroup of
the Joint Subcommittee on Aquacultures Aquaculture Effluents Task Force related to cost
variations observed in the trout industry (AETF, 2003). Option A included primary settling,
BMP plans for drugs and chemicals, and escape prevention, and reporting for INADs and
extra label drug use. Option B included those items in A in addition to either a BMP plan

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C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

for solids control or solids polishing with a microscreen filter. Both EPA and AETF
estimates of costs associated with microscreens were included.
Since production characteristics, costs, and prices vary through time and from farm to
farm, a stochastic Monte Carlo simulation model was used to assess the effect of variations
in budget parameters on net returns. The enterprise budgets developed were based on
typical farm values observed in the survey data. Crystal Ball11 (Decisioneering Inc.,
Denver, Colorado), an add-on program to Microsoft Excel, was used to substitute
probability distributions for the single values used in the enterprise budget worksheets.
Triangular distributions characterized by a most likely, a minimum, and a maximum value
were used for most assumptions. The model generated stochastic fluctuations in selected
variables and calculated the probability of achieving positive net returns. Simulations of
1000 iterations per scenario were run.
The enterprise budgets were used to construct mixed integer programming models
(Dantzig, 1991; Anderson et al., 2004) for North Carolina farms with capacity to produce
68,182 kg/yr (150,000 lb/yr) and for Idaho farms with capacities of both 90,909 kg/yr
(200,000 lb/yr) and 1,136,364 kg/yr (2,500,000 lb/yr). The objective function of the model
was to maximize net returns above variable costs. Constraints included supply and demand
balances for foodsize trout and for purchased inputs. The North Carolina model included
production and sales activities for both food trout and recreational trout sales because the
survey data showed different prices and market constraints for sales to the recreational
market in North Carolina. The Idaho survey data showed foodfish sales only. Resource
availability constraints and non-negativity constraints were included. Effluent treatment
option constraints were integer variables including each component of the proposed
options. The model was formulated by aggregating all equations so that the model
maximizes net returns above variable costs after imposing the various treatment options
subject to constraints including integer variable constraints (Meredith et al., 2002).

3. Results and discussion

The response rate of the structured questionnaire in Transylvania County in North
Carolina was 81%. Farms had a median production level of 66,000 kg/yr, ranging from
1000204,500 kg/yr (Table 2). Median market price of food trout was $2.42/kg ($1.10/lb).
Major expenses on trout farms were the variable costs of fingerlings, feed, labor, management, and fixed depreciation costs. Fingerlings cost $0.07 each, but ranged from $0.07
$0.17 depending upon the size purchased. Feed conversion ratios ranged from 1.041.55
with a median of 1.20. Feed prices ranged from $0.66$0.79/kg with a median price of
$0.70/kg. Depreciation costs ranged from $6,000$18,000/farm.
Farmers interviewed in Idaho had a median production of 1.2 million kg/yr, ranging
from 27,000 kg/yr to 1.7 million kg/yr. Idaho trout farmers purchased eggs instead of
fingerlings, at a median cost of $0.015 each. Feed conversion ratios were similar, but Idaho
feed costs were slightly lower than in North Carolina. Depreciation costs per farm
increased with the larger farm sizes in Idaho.
1

Use of a particular brand name does not imply endorsement.

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309

Table 2
Selected results of surveys of trout farms in Transylvania County, North Carolina and Idaho
Item

Unit

North Carolina

Idaho

Median

Range

Median

Range

Farm size
Market price food trout
Seed costa

kg/yr
$/kg
$ each

66,000
2.42
0.07

1,000204,500
2.333.04
0.070.17

1,200,000
1.76
0.015

27,0001,700,000
1.541.83
0.0150.02

Feed
FCRb
Price
Laborc
Management
Depreciation

$/kg
h
h
$

1.20
0.70
1,680
720
12,000

1.041.55
0.660.79
1,4702,100
6301,800
6,00018,000

1.20
0.64
1,400
600
16,000

a
b
c

1.201.55
0.620.66
1,4002,400
6003,600
8,00024,000

North Carolina farmers mostly purchased fingerlings while Idaho farmers purchased eggs.
Adapted from EPAs detailed survey aggregated values.
Labor costs include both paid labor and unpaid (family) labor.

3.1. Enterprise budget and risk analysis

The enterprise budget analysis showed that gross revenue for similar sizes of production
units is lower in Idaho than in North Carolina (Table 3). Differences in products, target
markets, market channels, and positioning of trout products in the respective states result in
lower prices received by farmers in Idaho as compared to those received by trout farmers in
North Carolina.
The greatest expense in trout farming in both states is feed (Table 4). Feed represented
40% of total variable costs (TVC) and 36% of total costs (TC) of trout farming in North
Carolina. On the relatively larger trout farm sizes modeled for Idaho, feed represented from
5257% of TVC and from 4450% of TC. Labor was the next highest cost on the farm in
NC (14% of TC) and on the medium farm in Idaho (11% of TC). Depreciation was the
second-greatest cost (11% of TC) on the larger farm in Idaho. For the NC farms, other cost
shares include: management (11% of TC), fingerlings (8% of TC), depreciation (8% of
TC), interest on operating capital (7% of TC), and oxygen (6% of TC).
All representative farms modeled showed positive net returns after accounting for both
cash and non-cash expenses (Table 3). Overall net returns were highest on the larger farm in
Idaho and were followed by the NC farm. The lowest returns modeled were those of the
medium-sized Idaho farm.
Breakeven prices above total costs (BEPTotal Costs) ranged from $1.51$2.29/kg ($0.69
$1.04/lb), with the NC farm model exhibiting the highest BEPTotal Cost (Table 3). However,
given the higher market prices in NC, the higher BEPTotal Cost does not by itself reflect
lower profitability.
The enterprise budgets included all unpaid family labor and management. The majority
of medium-sized farms are family-operated businesses in which the majority of labor and
management is from unpaid family members. The value of this resource is especially large
in proportion to overall costs and revenue on smaller farm sizes. Assigning a dollar value to
the number of hours worked by the family members indicates that net returns from the
enterprise, while positive, are low even without considering the costs of effluent treatment.

310

Table 3
Annual costs and returns for base scenarios, trout production, North Carolina and Idaho
Description

Unit

North Carolina

Idaho
Medium farm

Variable costs
Fingerlings
Production feed
Medicated feed
Chemicals
Oxygen
Salt
Vaccines
Others
Energy
Labor
Management
Office supplies
Nets, boots
Repairs/maint.
Interest on operating capital

Unit price

Quantity

kg

2.42

68,182

165,000

each
kg
kg

0.07
0.704
0.92

187,500
79,179
1,623

13,125
55,742
1,493

1
2.045
1
1
1
1,680
720
1
1
1
129,695

9,000
279
1,125
900
3,000
22,781
18,000
200
300
3,750
10,376

Total
Metric ton
Total
Total
Total
h
h
Total
Total
Total

9,000
136.4
1,125
900
3,000
13.56
25
200
300
3,750
0.08

Total variable costs

Fixed costs
Telephone
Legal/accounting
Insurance
Licenses/taxes
Int. real estate
Depreciation
Total fixed costs

Total value

Unit price

Quantity

Total value

Quantity

Total value

1.76

90,909

160,000

1,136,363

2,000,000

500,000
106,909
2,182

7,500
68,208
2,400

6,250,000
1,336,363
27,273

93,750
852,600
30,000

1
2.73
0
1
1
1,400
600
1
1
1
122,174

620
300
0
1,200
4,000
17,346
15,000
200
400
5,000
9,773.92

12.5
27.273
1
7.5
12.5
12,600
5,400
8
7.5
1.9
1,378,814

7,750
3,000
27,500
9,000
50,000
156,114
135,000
1,600
3,000
9,500
110,305

0.015a
0.638
1.10
620
110
27,500
1,200
4,000
12.39
25
200
400
5,000
0.08

140,071
Total
Total
Total
Total
Total
Total

131,948

1,489,119

785
750
2,000
750

1
1
1
1

785
750
2,000
750

785
3,000
620
2,000

1
1
1
1

785
3,000
620
2,000

2
4
12.9
7.5

1,600
12,000
8,000
15,000

12,000

12,000

16,000

16,000

11.9

190,000

16,285

22,405

226,600

C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

Gross revenue

Large farm

Total costs

156,356

154,353

1,715,719

Net returns

8,644

5,647

284,281

$/kg
$/kg

Breakeven yield
Above total variable costs
Above total costs

kg
kg

Price of eggs purchased.

2.05
2.29
57,881
64,610

1.45
1.70
74,970
87,701

1.31
1.51
846,090
974,840

C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

Breakeven price
Above total variable cost
Above total cost

311

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C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

Table 4
Percentage of costs of major expense items for North Carolina and Idaho trout farms
Item

North Carolina

Idaho
Medium farm

Feed
Labor
Management
Fingerlings
Depreciation
Int. on operating capital
Oxygen
Eggs
a
b

Large farm

% TVCa

% TCb

% TVC

% TC

% TVC

% TC

40
16
13
8
9
7
6

36
14
11
8
8
7
6

52
13
11

12
7
<1
6

44
11
10

10
6
<1
5

57
10
9

13
7
<1
6

50
9
8

11
6
<1
6

Total variable costs.

Total costs.

The treatment options proposed by EPA require varying combinations of labor,

management, capital (charged as annual depreciation), and operating and maintenance
(O and M) costs (Table 5). Quiescent zones require land and capital costs associated with
the structure and vacuum components for removal of sediments. Likewise, an offline
Table 5
Estimated annual costs of proposed treatment options by farm size and location
Treatment option/items

Unit

Medium-sized farms

Large-sized farm

NC

ID

ID

Primary settling
Quiescent zones
Land
Depreciation
Vacuum components

$
$/yr
$/yr

1,114
2,227
500

1,815
2,474
500

27,224
28,029
500

Total labor time

h/yr

307

511

7,666

Offline settling pond w/front-end loader

Depreciation of OSP
$
Land for field application
$
O & M costs
$/yr

3,117
150,000
6,597

3,124
22,000
6,597

17,900
275,000
6,597

h/yr

232

232

584

$
$
$/yr

4,167
150,000
1,207

4,174
22,000
1,207

18,950
275,000
1,207

h/yr

232

232

584

56

56

56

Total labor time

Offline settling pond w/vacuum tank
Depreciation of OSP
Land for field application
O & M costs
Total labor time
BMP plans
Drug & chemical plan
First year only
Total management time

C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

313

Table 5 (Contined )
Treatment option/items

Total labor time

Unit

Medium-sized farms

Large-sized farm

NC

ID

ID

Every year
Total management time
Total labor time

h/yr
h/yr

1
1

1
1

1
1

Solids control plan

First year only
Total management time
Total labor time

h/yr
h/yr

80
16

80
16

80
16

Every year
Total management time
Total labor time

h/yr
h/yr

12
12

12
12

12
12

BMP plan for escape prevention

Total management time
Total labor time

h
h

57
9

57
9

57
9

INAD reporting
Total management time
Total labor time

h
h

27
92

27
92

27
92

h/yr
h/yr
$/yr

12
192
4,008

12
192
4,008

12
192
4,008

$/yr
h/yr
h/yr
$/yr
$/yr

250
12
108
4,008
5,928

250
12
108
4,008
5,928

250
12
108
4,008
5,928

$
$

9,140
4,300

9,140
4,300

45,700
21,500

$
$
h/yr

805
1,411
26

805
766
26

1,682
766
26

Compliance monitoring
Labor
Total management time
Total labor time
Other costs
Composite sampler
Water quality sampler depreciation
Total management time
Total labor time
Other costs
Weekly monitoring
Solids polishing
Microscreens-AETF
Depreciation
O & M costs
Microscreens-EPA
Depreciation
O & M costs
Total labor time

settling pond requires capital for the structure, land for field application and O and M costs.
The offline settling pond will require either a front-end loader or a vacuum tank for proper
operation. The drug and chemical BMP requires only labor and management time with a
much higher time requirement the first year. The solids control BMP plan requires only
labor and management time with a greater quantity of time required the first year.
Compliance monitoring also requires labor and management if the monitoring is done

Treatment strategies

Net returns from North Carolina farm

scenario

Net returns from Idaho farm scenarios

Medium (90,909 kg/yr)

Large (1,136,363 kg/yr)

Most
likely ($)

Most
likely ($)

Most
likely ($)

Probability of
positive returns (%)

Probability of
positive returns (%)

Low-cost scenarios
Baselinea
Option 1b
Option 2c
Option 3d
Option Ae
Option Bf, w/solids control BMP
Option Bf, microscreens, EPA
Option Bf, microscreens, AETF

8,644
25,509
27,180
32,320
25,954
28,848
29,020
43,776

46
0
0
0
0
0
0
0

5,647
33,810
35,469
39,879
31,066
33,924
33,402
48,888

2
0
0
0
0
0
0
0

284,281
43,087
41,427
35,573
45,832
42,974
42,232
43,278

84
11
10
10
11
11
11
0

High-cost scenarios
Baselineg
Option 1h
Option 2c
Option 3i
Option Ae
Option Bf, w/solids control BMP
Option Bf, microscreens, EPA
Option Bf, microscreens, AETF

6,125
55,908
57,579
77,474
56,352
59,246
59,418
74,174

40
0
0
0
0
0
0
0

3,128
65,142
66,801
86,697
62,398
65,256
64,734
80,220

1
0
0
0
0
0
0
0

271,688
259,844
21,503
352,686
257,098
259,958
260,700
346,208

82
0
0
0
0
0
0
0

Excluding land financing costs.

Includes: solids control BMP plan, compliance monitoring done by automatic composite sampler, quiescent zones without negative effect on production, offline settling pond
constructed without having to destroy tanks and emptied with a vacuum tank, and no additional land purchased for disposal of the solids.
c
Includes Option 1 plus a drug and chemicals BMP plan.
d
Includes Options 1 and 2 plus solid polishing with microscreen filters (estimates adapted from USEPA, 2002).
e
Primary settling, BMP plans for drugs and chemicals, escape prevention, and reporting INAD and extra label drug use.
f
Includes Option A plus either a BMP plan for solids control or solids polishing with microscreen filter.
g
Including land financing costs.
h
Includes: solids control BMP plan, compliance monitoring done by hand, quiescent zones which proportionately reduce production, offline settling pond constructed by
having to destroy tanks and emptied with a front-end loader, and additional land purchased for disposal of the solids.
i
Solids polishing with microscreen filters (AETF, 2003).
b

C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

Medium (68,182 kg/yr)

Probability of
positive returns (%

314

Table 6
Net returns and probability of achieving positive net returns after imposing various effluent treatment options, Monte Carlo simulation risk analysis

C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

315

by hand. However, if a composite sampler is purchased, additional capital cost is incurred.

Solids polishing with a microscreen entails a capital cost. Estimates of the capital cost vary
between EPA and the AETF Flow-Through Subgroup, but both estimates are presented
(Table 5).
All effluent treatment options resulted in negative net returns for the medium-sized
farms in both NC and ID (Table 6). These results showed that none of the treatment options
proposed are economically feasible for this farm size. This is the case even in the low-cost
scenarios that do not include the cost of purchasing land for waste disposal.
Net returns for the largest farm size considered were still positive after imposing the
lowest-cost scenarios for each treatment option. However, while positive, net returns were
only $3138/MT of production. This low level of profitability would generate a return on
average investment of less than 4%. Given that opportunity costs of capital in the U.S. are
considered to be in the range of 912% (Kay and Edwards, 1999; Barry et al., 1995), such a
low rate of return is unlikely to be sufficiently attractive for investors. The opportunity costs
of using this capital in trout farming are likely to be too great to continue to operate over
time. Net returns became negative for all treatment options considered for the large farm
under the high-cost scenarios.
The risk analyses resulted in estimates of the probability of each scenario generating
positive net returns (Table 6). The estimated probabilities of achieving positive net returns
for the North Carolina baseline scenario were 46% for the low-cost scenario and 40% for
the high-cost scenario. These probabilities dropped to 2 and 1%, respectively, for the
medium-sized farm in Idaho. These relatively low probabilities reflect the low profitability
of trout farming on this scale if all family labor and management are charged at full rates.
The probability of obtaining positive net returns was highest for the largest farm size in
Idaho, 84% for the low-cost base scenario and 82% for the high cost base scenario. These
high probabilities of positive net returns likely reflect economies of scale associated with
trout farming.
Imposing the various effluent treatment options decreased the probability of generating
positive net returns to zero for the medium-sized farms in North Carolina and Idaho as well
as for the high-cost scenario on the large Idaho farm. Thus, not only are mean expected net
returns estimated to be negative but there is an extremely low probability of these farms
surviving the additional costs associated with the proposed treatment alternatives. For the
low-cost scenario on the large Idaho farm, the probability of obtaining positive net returns
decreased to 11% for Option 1 and to 1011% for the other options. Thus, even though net
returns were still positive after imposing the proposed treatment options, the financial risk
increases substantially.
The cost analyses presented in this study include all labor and management costs even if
these represent unpaid family labor. However, opportunity costs are real costs when a farm
operator is making long-term decisions related to his/her business. If the increased time
burdens on labor and management from effluent treatment options become so great that the
operator and family have more attractive alternatives, that farmer will choose to do
something else with his/her time and the farm may close. Consideration of the effects on
unpaid family labor and management is critical to this type of analysis. Inclusion of costs of
family labor is the most appropriate way to include this resource in economic analyses
(Kay and Edwards, 1994).

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C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

3.2. Results of mixed integer programming analysis

3.2.1. Base scenario
Net returns above variable costs in the base scenario of the model for the medium-sized
farm in North Carolina were $59,877 (Table 7). Note that these returns do not represent
profits because annual fixed costs are not included. Fixed costs are complex to account for
in mathematical programming models and objective functions are frequently specified as
net returns above variable costs for this reason. However, annual net returns for these
treatment options were negative, as shown in Table 6. The mixed-integer programming
models were still developed in order to explore additional constraints and limitations
imposed by the proposed treatments.
In the base scenario, all tanks on the NC farm were in production with 26 used for
foodfish trout production and 4 used to produce trout for the recreational market. Of the
total operating capital required ($140,000), $75,000 was equity capital (retained earnings)
and the remaining $65,000 was borrowed at an interest rate of 8%. The investment
borrowing level used in the model was $90,000, equaling the assumed level of equity
capital in the business. The additional $90,000 of credit reserve specified in the model was
not needed in the base scenario and remained unused. Available family labor alone was not
sufficient to meet all labor and management requirements on the farm; thus, the model also
selected hiring part-time labor to fulfill all labor requirements. Baseline farms were
economically feasible even with no owner equity in operating capital. Without owner
equity, net returns would be reduced by the amount of the interest charged on all operating
capital, or $6000, for total net returns of $53,877. Varying levels of interest on operating
capital affected the overall level of net returns but did not result in changes in the basic farm
production plan.
The base scenario model was particularly sensitive to the level of credit reserves both for
operating and investment capital. Reductions in total available operating capital (equity
capital plus borrowing capacity) resulted in reducing the number of tanks in production and
a consequent reduction in net returns above variable costs of $5455 from the scenario in
which 100% of the operating capital was borrowed (Table 7). This sensitivity to availability
of operating capital (regardless of whether equity or borrowed) is important because the
maximum amount of operating capital (for either a line of credit or a standard loan) is
frequently set as a percentage of the value of the crop. For example, if a farmer were
required to take tank space out of production for quiescent zone development, total
production is reduced, and the operating capital borrowing capacity is also reduced.
This factor may not be critical if land adjacent to the farm is available for purchase at prices
that are economically feasible. However, we suggest that trout farms often are located in
areas with high demand for competing uses that put upward pressure on land prices.
As total operating capital decreased, tanks were dropped out of production: from $140,000
to $129,000, four tanks were dropped out of production, followed by five more as
total operating capital decreased to $119,000 and four more with each additional decrease
of $20,000 in operating capital. Net returns would decrease by approximately $6000
for each $20,000 decrease in operating capital, depending upon the ratio of equity to
borrowed operating capital. The decrease in net returns resulted from increased interest
costs.

Scenario/total available capital

(equity + borrowed) ($)

Equity
capital ($)

Base
$140,000

75,000

No equity, full borrowing capacity

$140,000

Borrowed
capital ($)

Net
returns ($)

Foodfish
tanks (no.)

Recreational fish
production tanks (no.)

65,000

59,877

26

140,000

53,877

26

Low equity, reduced borrowing capacity

$139,000

4,000

135,000

48,422

22

Base equity, reduced borrowing capacity

$129,000
$119,000
$99,000
$79,000

75,000
75,000
75,000
75,000

54,000
44,000
24,000
4,000

54,102
47,514
40,925
33,137

22
17
13
9

4
4
4
4

C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

Table 7
Results of NC base model at different levels of operating capital, considering both equity and borrowing capacity

317

318

C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

Investment capital constraints in the model included both equity capital that could be
used for investment and borrowed investment capital. Sensitivity analyses were developed
in which: (1) additional land was assumed to be available; (2) investment capital borrowing
capacity was assumed to be $90,000; and (3) operating capital borrowing capacity was
assumed to increase with the addition of any new tanks. The assumed $90,000 of borrowing
capacity in investment capital was based on the assumption that the land and tanks were
owned and served as collateral. Thus, the borrowing capacity would be equal to the value of
the land and tanks. Under these assumptions, the model constructed 12 new tanks that
would be financed through borrowed capital. Net returns would increase to $63,794 from
the additional production generated. Labor needs were met in the model by hiring
additional part-time labor.
Both land prices and tank construction costs affected the farms ability to add to the
physical plant of the business. If the farm did not have land available for construction of
new tanks, no new tanks would be constructed even with adequate levels of borrowing
capacity. This occurred because the average land purchase price specified in the model of
$25,000 was too high for expansion to be feasible. Land prices had to drop to less than
$13,000/acre for expansion to be feasible (Table 8). At a land price of $12,500, 16 new
tanks would be constructed that, after debt-servicing charges, would increase net returns
above variable costs to $67,179. Land prices of $6,000 or less would allow construction of
20 new tanks for net returns above variable costs of $70,204. A 40% decrease in tank
construction costs resulted in further increases in farm capacity through additional
construction of new tanks and net returns above variable costs of $76,401$77,841,
depending upon land price. However, increasing tank construction costs to $2,917 had no
effect on construction of new tanks.
3.2.2. With effluent treatment options
The mixed integer programming models were not feasible under any proposed effluent
treatment options when full costs of quiescent zones and offline settling basins were used in
the model (Table 9). Construction of off-line settling basins required higher levels of
capital investment than is likely to be available for trout farms in NC. Lenders often impose
a cap that limits the total amount of lending to a particular farm; some lenders base this cap
on a percentage of the value of the crop inventory. The model could not find a feasible
solution when credit reserves were specified in the model at levels commonly used by rural
Table 8
Investment capital, if no land is available on the farm and operating capital increases with the number of new tanks
Land cost ($)

Tank cost ($)

New tanks built (no.)

Net returns ($)

Base
$25,000a
12,500
6,000
6,000
12,500
12,500

2,333
2,333
2,333
1,750
2,917
1,750

0
16
20
24
16
24

59,877
67,179
70,204
77,841
67,493
76,401

Tank construction cost is reduced by 40% in these cases.

a
Land costs were observed to range from $12,500125,000/ha ($5,000$50,000/ac) in the NC survey.

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319

Table 9
Effect on net returns of varying investment costs of primary settling structures
Estimated cost of primary
settling structures (%)

Investment capital
Equity

Borrowed

Net returns above

variable costs

100
75
50

Infeasible
$90,000
$90,000

Infeasible
$82,075
$90,000

Infeasible
$12,295
$33,971

banks for aquaculture loans. Since aquaculture is viewed as a high-risk activity in areas that
are primarily row-crop areas, the standards used for evaluating aquaculture loans may
differ from those used in other forms of agriculture. Moreover, banks in some states will not
use swimming fish inventory as collateral for loans.
For the model to produce a feasible solution, either the costs of designing and installing
quiescent zones and offline settling basins had to be reduced to less than 75% of the
estimated cost or the level of borrowing capacity would have to exceed the value of existing
facilities. This would require farms to use personal collateral other than the land and tanks
themselves. At 75% of estimated costs of constructing quiescent zones and offline settling
basins, only eight tanks were in production and net returns above variable costs were only
$12,295 (Table 9). Farms that do not account for all unpaid family labor or sunk costs in
equipment and facilities may be able to construct facilities at lower cash costs. Subsequent
runs of the model were developed using quiescent zone and offline settling basin
investment capital requirements of 50% of the estimated cost.
Table 10 presents results of the mixed integer programming models for the mediumsized farm scenario in North Carolina when the various effluent treatment options were
forced into the models using the 50% level of estimated construction costs of quiescent
zones and offline settling basins. Net returns above variable costs decreased dramatically
(4356%) for Options 1, 2, A, and B with a solids control BMP. The model could not
identify a mathematically feasible way to comply with either Options 3 or B with
microscreen filters.
Forcing treatment Option 1 into the model resulted in dropping four tanks out of
production. Less operating capital was borrowed because fewer tanks were in production,
Table 10
Effect on net returns of imposing various effluent treatment options on the medium-sized farm in North Carolina
Scenarios/treatment options

Base scenario
Option 1
Option 2
Option 3
Option A
Option B w/solids control BMP
Option B w/microscreens,
EPA estimates

Tanks in production

Capital borrowed

Net
returns ($)

Foodfish
(no.)

Recreational
(no.)

Labor
hired (h)

Operating
($)

Investment
($)

59,877
33,971
26,358
Infeasible
32,859
26,145
Infeasible

26
22
22

4
4
4

4
4

1,500
495
504

577
934

65,000
51,088
58,024

51,088
53,008

0
85,549
85,549

85,549
83,049

22
22

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C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

but an additional $85,549 of investment capital was borrowed. The additional investment
capital was required primarily for primary settling units.
A BMP plan for drugs and chemicals was added to the model to evaluate the impact of
imposing Option 2 on medium-sized trout farms in North Carolina (Table 10). The solution
was similar to that for Option 1 with slightly lower net returns above variable costs
($26,358), a reduction of $7613 that accounted for the increased variable costs, interest on
operating capital, and increased hours of part-time labor hired.
The use of microscreens for solids polishing and weekly compliance monitoring
requirements were added to the Option 2 model to evaluate farm-level effects of Option
3. The model could not produce a mathematically feasible solution when Option 3 was
imposed for either the EPA or the AETF cost estimates.
Net returns above variable costs of $32,859 (45% decrease from the base scenario) were
obtained when Option A was imposed on the model (Table 10). Total operating capital
borrowed was $51,088. Total investment capital borrowed was $85,549. Part-time labor
was hired for 577 h. Since the driving factor in the model results was the amount of
investment capital required for the quiescent and settling basins, results of the sensitivity
analyses were similar to those discussed earlier.
Option B with a solids control BMP plan resulted in net returns above variable costs of
$26,145 (Table 10). Option B with microscreen filters was not mathematically feasible.
Negative net returns above variable costs were obtained even with the EPA estimates of
microscreen costs.
Fig. 1 presents net returns above variable costs for the proposed treatment options for the
two Idaho farm scenarios. Overall, trends were similar to those found for the NC farm
scenarios. For the medium-sized farm, net returns above variable costs decreased to very
low levels for proposed treatment Option 1. Option 2 was similar. Option 3 generated
negative net returns above variable costs (for both EPA and AETF cost estimates) for the
medium-sized farm. Option A resulted in net returns above variable costs of a similar
magnitude to those of Options 1 and 2. None of the Option B treatment options were
feasible.
On the large Idaho farm, net returns above variable costs were positive, but at levels 74
84% lower than pre-treatment levels for Options 1, 2, and A. Options 3 and B (with EPA
estimates) were still positive, but at a lower level. Options 3 (with AETF estimates), B
(with BMP for solids control), and B (with AETF estimates) were all negative.
Investment capital limited the farms ability to implement the proposed treatment
options. Part of the need for additional investment capital is for the land costs associated
with disposal of wastes from off-line settling basins. Alternatives to purchasing land for
waste disposal may include land application on fields not owned by the farm or possibly the
sale of material as a soil amendment for gardeners or landscapers. In this study, the
analyses were run at 50% of the estimated investment capital requirements and additional
sensitivities were run at much lower levels of investment capital. At the lowest levels, the
investment cost approximated rent levels commonly charged in areas near trout farms in
NC and ID. The results of the study were robust across this wide range of investment capital
levels. Individual farmers may be able to develop relationships with other farms that reduce
the costs associated with land disposal. However, many of the trout farming areas have high
demand for competing uses that have increased the value of land, its rent, and may decrease

C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

321

Fig. 1. Net returns above variable costs for proposed treatment options for two Idaho farm scenarios.

the number of opportunities for low-cost land application of waste products. It is not known
as to whether a marketable product could be developed from the waste products. There
likely would be additional research and development costs to develop appropriate
packaging, storage, and transportation logistics with such a product that would result
in some increase in investment capital. Limits on investment capital borrowing resulted in
reducing the number of tanks in production. Imposing effluent treatment technologies
forces farms to operate at less efficient levels.

4. Conclusions
Trout farming has been a profitable aquaculture business in the U.S., particularly in
Idaho and North Carolina. Results of the enterprise budget analysis showed that
proposed effluent treatment options result in negative net returns for medium-sized
farms in both North Carolina and Idaho. Under higher-cost scenarios, even the largest
farm size considered became unprofitable after imposing treatment options. The risk
analysis showed very low probabilities of generating positive net returns after imposing
treatment options for all farm sizes and cost levels. The mixed integer programming

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C.R. Engle et al. / Aquacultural Engineering 32 (2005) 303323

models further demonstrated that proposed treatment options will not be economically
feasible for trout farms in North Carolina and Idaho. The primary factor that influenced
model results was the capacity to borrow operating and investment capital. Specific
components of borrowing capacity are defined differently by different banks, but
typically are based on a firms balance sheet. Collateral used frequently includes the
value of land and raceways, equipment, and in some cases, may include swimming
inventory. The borrowing capacity levels used in the model were based on the values of
these components obtained from the survey, but sensitivity analyses showed that the
results were robust over a wide range of values. Limits to the borrowing capacity of both
operating and investment capital were the primary factors. The models showed that the
high land prices in areas adjacent to trout farms prevent their expansion. If additional
production area is taken out of production in order to add effluent treatment technologies, then the operating capital borrowing capacity is reduced; yet, investment capital
borrowing would need to increase.
Some farms had incorporated some of the treatment options proposed by EPA prior to
the consideration of new guidelines. It is likely that these farms were able to do so
because additional land at affordable prices was available or because sunk costs on older
farms do not generate cash expenses. This would allow these farms to expand production
to offset the increased fixed costs associated with treatment, particularly if non-cash
expenses were not taken into consideration. However, sunk costs in capital goods will
eventually need to be replaced and economic analyses must consider long-run effects.
This study further documented the relatively high levels of financial risk on trout farms.
The proposed regulations considered in this analysis required additional investment capital
that further increased financial risk. While some fish farmers successfully manage around
relatively high levels of financial risk, at some point the risk becomes greater than the
operators ability or willingness to accept. The farm then shuts down.
Limits to borrowing capacity forced farms to take tanks out of production. The budget
analysis showed that larger farms can manage the expense of treating effluents better than
smaller farms, but imposing these regulations forces farms to reduce production due to
limited capacity to borrow additional funds. Thus, these proposed regulations create a
paradox for farmers in that the increased investment capital required for compliance
increases economies of scale and incentives to expand farm size. However, since the
additional investment is not generating additional production, it uses up borrowing
capacity and causes farmers to reduce production potential. Thus, farms are forced to
operate at inefficient levels.
Overall, the proposed regulations pose serious economic challenges to trout farms,
increase financial risk on farms, and increase economies of scale and barriers to entry.
Limitations on borrowing capacity may force existing farms to substitute treatment
facilities for production units and, thus, operate at inefficient levels.

Acknowledgments
The authors thank the trout farmers in Idaho and North Carolina who participated in the
survey interviews. This material is based upon work supported by the USDA Cooperative

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323

State Research, Education and Extension Innovation Fund grant (Agreement No. 0038859-9235) administered by Mississippi State University.

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